Written by Ofir Levy and Ofir Paz
On May 12, 2016, the Director of the Israeli Tax Authority signed a Competent Authority Agreement for the automatic exchange of information regarding the implementation of reporting by multinational groups through the submission of a report on the group and its activities in each country for each tax year. This report is the Country-by-Country Report (the “CbCr”).
The obligation to submit the CbCr was added to the Israeli Income Tax Ordinance (the “Ordinance”) in 2022 under Amendment No. 261 of the Ordinance, which was accompanied by an amendment to the Income Tax Regulations (Determination of Market Conditions). It was determined that an ultimate parent entity that is an Israeli resident and belongs to a multinational group with an annual turnover exceeding ILS 3.4 billion in the year preceding the reporting year must submit the CbCr to the Israeli Tax Authority electronically within one year from the end of the tax year, starting from the 2022 tax year. The content of the report must comply with Form 1685, published by the Israeli Tax Authority (the following is a link to the form: https://www.gov.il/he/service/crs).
Israeli Tax Authority’s New Circular
On February 11, 2025, the Israeli Tax Authority published Income Tax Circular no. 1/2025 (the “New Circular”), which specifies the obligations and requirements related to the CbCr that an ultimate parent entity must submit pursuant to section 85C(c) of the Ordinance.
The New Circular outlines, among other things, the following obligations and requirements related to the ultimate parent entity’s duty to submit the report, so that the reporting will be conducted electronically and automatically exchanged with tax authorities of countries that have an agreement with Israel.
- Reporting Obligation – Key points regarding the reporting obligation have been published, including the place of submission (distinguishing between a group whose ultimate parent entity is an Israeli resident and a group whose ultimate parent entity is not an Israeli resident but has another Israeli-resident entity in the group), the Israeli Tax Authority’s authority to require submission of a report in Israel in certain cases, and the deadline for submitting the report.
- Method of Report Submission – The obligations and requirements for submitting the report in Israel have been published, including the procedure for registering an entity on the Automatic Exchange of Information Portal, the method for transmitting the report through the Portal, and the process for receiving confirmation of the CbCr submission.
- Automatic Exchange of Information – It was emphasized that after submitting the CbCr through the Portal, the report will be automatically exchanged with countries that have a Competent Authority Agreement with Israel regarding the CbCr. The list of countries is available on the OECD website and is updated periodically (the following is a link to the list: OECD temporary archive).
- Clarifications, Sanctions, and Enforcement – This section includes specific clarifications, such as how compliance with the reporting threshold in Israel (ILS 3.4 billion) is assessed when the ultimate parent entity, which is an Israeli resident, reports its financial statements in a currency other than the shekel. In addition, it was clarified, among other things, that failure to submit the CbCr is considered equivalent to failing to submit a report under Section 131 of the Ordinance, including cases where a partial or incorrect report was submitted. Furthermore, if a group is eligible to submit the CbCr outside of Israel but fails to do so by the end of the tax year, it will be required to submit the report to the Israeli Tax Authority for that year. Israeli resident entities that are part of a multinational group subject to CbCr reporting obligations and do not have a file with the Israeli Tax Authority will be required to open a file for the purpose of this reporting.
- The Israeli Tax Authority has published a list of frequently asked questions (FAQs) on this topic on its website at the following link: https://www.gov.il/he/departments/faq/cbcr-faq.
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